(I'm posting this primarily because they mention Nintendo's next
generation system, not trying to be negative or anti-Nintendo)

washingtonpost.com
Not-So-Super Mario
Stodgy Nintendo Is Falling Behind in The Game Wars

By Mike Musgrove
Washington Post Staff Writer
Thursday, December 25, 2003; Page E01

For owners of the Nintendo GameCube, new offerings from the video game
company can sometimes have a familiar feel.

Right now, the company's trademark Mario character is featured in
another racing game, another golf game and the fifth in a series of
party games with his name attached (do all plumbers have so much
leisure time?). The Pokemon have moved on from competitions in the
"Stadium"; now they will face each other in a "Colosseum." Details on
yet another new Zelda game are sketchy at this point, but it appears
that players will be spending at least some time poking through
cartoony castles looking for magic crystals -- surely there's a
princess in need of rescue around here somewhere.

The video game world may have changed much over the GameCube's
two-year lifespan, but mostly not because of Nintendo. Competitors
Sony and Microsoft have taken video gaming online, turned their game
consoles into karaoke machines and developed ways to allow gamers to
insert digital likenesses of themselves in an effort to win new
audiences. Nintendo, meanwhile, has stuck to a philosophy that people
who buy and play video games enjoy the familiar and care little for
such gimmickry.

At the industry's main trade show this year, Nintendo executives
"talked about how they wanted to be cutting edge and create great new
games," said P.J. McNealy, an analyst at American Technology Review.
"Then they rolled out a new version of Pac Man, which is about as old
school as it gets, besides maybe Pong."

The lack of new offerings has some analysts wondering if the
once-dominant Japanese company may be waning, the next Sega, consigned
to make video games instead of selling the machines that play them.

Tried-and-true titles from Nintendo are still selling, but they are
seeing diminishing returns. The most recent game in the company's
popular Zelda series, called The Wind Waker, was one of the year's
best-selling games. Since it became available in March, 1.3 million
units have sold to date, according to research firm NPD. Not bad, but
the 1998 release in the series, called Occarina of Time, sold more
than 2 million copies in less than two months for Nintendo's last
console, the Nintendo 64.

After a year of mostly lackluster sales for the GameCube console (save
a recent spurt following a recent price cut) and declining support
from game developers, it looks as though Nintendo may have
miscalculated. In the United States and Europe, the $99 GameCube is
No. 3 in sales, behind Sony's $180 PlayStation 2 and the similarly
priced Xbox. In Japan, the GameCube is No. 2, behind PlayStation. The
actual numbers are more telling; Sony has sold about 60 million
PlayStation 2s around the globe so far, compared with roughly 10
million each for Nintendo and Microsoft.

"It's like a home run contest between Barry Bonds, you and me," joked
Michael Pachter, an analyst at Wedbush Morgan Securities Inc. who
follows the video game industry. "He'll hit 70 and you and I will hit
zero. Or one."

Nintendo was not always an also-ran. During the last round of console
wars, it and Sony were power players who squeezed out a third, smaller
competitor. Sega, an established game veteran, eventually decided to
pursue the higher-margin business of designing games, not building the
hardware they run on.

Sega's lesson was that even the major players in this industry can
only afford a couple of pricey missteps.

"The GameCube is teetering on the edge of whether they should stay in
this business or not," said Jay Srivatsa, principal analyst at
research firm iSuppli. "You can't be just teetering around in this
market."

Nintendo maintains that it is staying in the business and will make a
stronger play when it releases the next generation of GameCube. Sony's
PlayStation 2 built its dominance by offering a new console in 2000,
"a year ahead of us," said Beth Llewelyn, director of public relations
for Nintendo. "We're not going to be in that position next time."

Sony also made a clever move in allowing games designed for the
original PlayStation to be playable on the PlayStation 2 -- a
compelling argument for gamers who, at $50 a game, may have spent
hundreds of dollars amassing a library for the PlayStation 2's
predecessor. The GameCube cannot play Nintendo video games made for
older model machines.

Nintendo's ace in the hole this time out was supposed to be its
ability to leverage its dominance in the handheld gaming market. With
its Game Boy Advance, which has sold 42 million units worldwide,
Nintendo essentially owns a massive market that the other console
makers haven't touched yet.

Nintendo designed the Game Boy Advance so that it could be plugged
into the GameCube and used as a controller. The company proclaimed
that the Game Boy Advance would be a "Trojan horse" for the GameCube
-- but that Trojan horse never opened because very few game designers
have figured out cool ways to take advantage of that connectivity.

"There hasn't been a huge killer app yet," admitted Llewelyn, the
Nintendo spokeswoman. As for that other type of connectivity, online
gaming, Nintendo has expressed little interest in the concept. "We
don't see it as a hugely viable business," she said.

Nintendo has focused many of its titles on the preteen and teenage
gamer. By contrast, Xbox, often seen as the cutting-edge choice for
older gamers, is offering a slick online service for players who want
to go head to head over the Internet, and has consequently won a
following that is an unlikely mix of grownup geeks and hiphop fans.
Actor Jack Black and rapper Method Man have given the Xbox rave
reviews; Rapper 50 Cent gave the console a shout-out in one of his
songs and Sean "P. Diddy" Combs recently signed on to do some
commercials.

Xbox's online game offerings are "the hip thing in gaming right now,"
said John Davison, editor of Electronic Gaming Monthly.

Nintendo has not divulged any news about what's next; the expectation
in the industry is that the console makers will start to share some
news about the next generation of video game hardware at the annual
Electronic Entertainment Expo trade show in Los Angeles next spring.
Conventional wisdom has it that 2005 will be the year the next wave of
consoles hits the markets, though some have speculated that Sony might
decide to squeeze another year of life out of the PlayStation 2 --
consoles are expensive to develop, after all -- and opt for 2006.

Game magazine editor Davison said the smartest thing for Nintendo to
do would be to "circle the wagons" on the handheld market and give up
the console market, a thought other analysts share. Sony is developing
a handheld gaming device of its own, due out late next year, and if it
ever dominates that market as it dominates the console market, it
could be game over for Nintendo, the analysts said.

No one is counting Nintendo out yet.

"They can certainly recover in the next generation," said Brian
O'Rourke, senior analyst at Instat MDR. "But the game console market
might be starting to move beyond what Nintendo can deliver."